Opinion: Why we need a crisis and a not so secret agenda

For speed readers, I reckon that our economy is being hollowed out by an exodus of wealth generators who are voting with their feet against higher taxes that pay for an expanding government and a growing list of beneficiaries. They are leaving behind a country dominated by a conservative group of voters who increasingly depend on the state for their income, creating a self-sustaining driver towards higher taxes and bigger governments. Only an economic crisis and a government with a new (hopefully not secret) agenda can stop New Zealand from congealing into a low growth, high tax economy that becomes a nursery for Australia. This crisis-driven swathe of reform is more likely than it has been, but is still unlikely with the current political landscape.

Jim asked whether I agreed with recent comments from PricewaterhouseCoopers partner John Shewan that forcing the top earning 15% of the population to pay nearly 60% of personal income tax was not politically sustainable. Shewan's suggestion was that GST would have to rise or the rich would revolt. I hadn't expected the question so I babbled an answer about how it was unlikely the rich would grab their torches and pitchforks right now and force through a higher GST, but that it was ultimately an unfair result of our democracy that a rich minority was forced to pay high taxes to a poorer majority. I suggested one expression of this voter anger might come in our election on November 7. Thinking about it a bit more I realised I was wrong about a couple of things. Firstly, fairness doesn't matter at all in a democracy or in most other forms of government -- self interest rules, it seems. Secondly, I was being optimistic about the 'rich' having their say at the ballot box and eventually changing the economy back towards a lower tax, smaller government version of the economy.

Instead, they are voting in another and altogether more depressing way that will reinforce the system they are protesting against. They are voting with their feet to buy one-way tickets to Australia. The scale of this exodus needs to be explained in some depth to show how big a problem it is and what it means for our political and economic future. The chart at the top shows the steep increase in the number of New Zealanders leaving permanently to live in Australia in the last 3 years. In the year to September net migration hit a record 33,929, beating the previous record of 33,703 in the year to January 1989. The gross figure in the year to September was 47,166 or 129 per day. Since November 1999 a gross 306,452 people have left New Zealand, while net migration was 189,801. This number was at least four times larger than the margin of victory for Labour in the 2005 election of 45,506. In 1999, Labour received 800,199 votes or 38.7% of the 2.05 million votes cast, while National received 629,932 or 30.5% of the vote. In 2005, Labour received 935,319 votes or 41.1% of the 2.286 million votes cast, while National received 889,813 votes or 39.1% of the vote. During this period both local and central governments grew consistently and faster than the rest of the economy. The number of people receiving benefits, Working for Families payments and/or working for local and central governments rose to around 1.45 million by September 2008 from 820,000 in June 1999. That's a 72% increase, driven largely by growth in Working for Families and 37% growth in government employee numbers to 307,000. This means that now we have 1.85 million people working and paying taxes to 1.75 million who receive benefits or work for the government. This near 1 to 1 ratio compares with a near 1.5 workers to 1 beneficiary in 1999. This increase in the size of government was paid for by rampant local body rates inflation, the new 39 cent personal income tax rate and by fiscal drag as inflation adjustments weren't made to tax thresholds. Indirectly, higher fees and charges by local governments and state owned enterprised also helped pay for the increased spending. Many thanks to David Chaston for compiling these numbers from official sources in this story. What am I suggesting here? Essentially, this growth in government is driving centre-right voters overseas and is encouraging centre-left voters to stay. The essentially conservative nature of the remaining voters and MMP is cementing in these policies. The upcoming election result will confirm this, regardless of which centrist party wins. The end result is a hollowed out, congealed economy with low wages and high taxes. The nature of MMP discourages the mainstream political parties from both sides making promises that are painful for anyone or enacting policies that are painful for anyone. The balance of power is so finely tuned and the electorate is so opposed to anything that is disruptive or involves change that few change are proposed before elections or undertaken in power. The only major changes that can be made are outside the parliamentary process, or more specifically, inside the budgetary process and the mechanics of executive government. Confidence and supply agreements make it possible for any government to change the structure of the budget as long as it involves increasing payments or benefits to the broadest group of people. Cutbacks or reductions in services are almost impossible, except for one term governments or short term governments. That doesn't mean to say changes in the structure of the government or the economy can't happen. The great irony of MMP is that since 1999 a signficant change has happened without an electoral mandate, but it happened by adding spending and using the power of fiscal drag and SOE super profits to pay for some of it. Apart from the 39 cent tax rate, none of these changes involved major legislative disruption that required the express and specific approval of parliament. It all happened in the budget bills or through ministerial and cabinet decisions. Budgets have largely been used to apply more government spending to more groups, either directly in the form of wages and salaries, or indirectly in the form of Working for Family rebates, higher pensions and free student loans. The recipients who are the majority love them, but they are paid for by an increasingly disgruntled minority. This inevitable result of our political system is sustainable for as long as we don't have an economic crisis. This slow hollowing out by a thousand cuts is still the most likely scenario, but a crisis that forces significant reforms is more possible. That's because the above average economic growth we've seen for most of the last 6-8 years was powered by household debt rather than productivity growth. The truth of our low growth, low wage, high tax economy is beginning to dawn on some voters and more radical reform to improve our growth rate may be possible if an economic crisis shocks voters into realising change is needed. This is a pity. Our political leaders should be laying out this challenge before us and coming up with realistic options to get New Zealand back on a higher growth path. But neither of them are because they either want to retain or win power in an MMP environment. Rightly or wrongly, they believe they can either change it from the inside or that it doesn't need change. One centrist party (Labour) says nothing is structurally wrong and the current problems are purely international and short term problems. The other centrist party (National) is telling voters they need not worry about big changes in the structure of our economy because the important thing is to have different faces and decision makers in charge of the public purse. Whichever centrist party wins, the chances of significant changes to the structure and level of government spending are small, unless one or the other breaks its promises and implements a 'secret agenda'. Labour is accusing National of having a 'secret agenda' it will 'discover' as soon as it takes power, potentially using the economic crisis as an excuse. Some may hope this is the case. It seems very unlikely given both the current state of the polls and the people in charge of both parties. Even if New Zealand First are not elected, a Labour-Green-United Future-Progressive-Maori Party government looks most likely. Even if National get the highest vote and NZ First are not elected, it will need the support of the Maori Party to govern. This is unlikely. A much more preferable option is for our politicians to unveil the scale of the financial crisis before us and map out the changes needed to the structure of our economy to achieve a high growth, high wage economy that offers an alternative to the wealth generators currently fleeing the country. I'd much prefer a public agenda to deal with a crisis to a secret or even undeveloped one that could easily destroy public confidence in our political system all over again. For what it's worth, I think that public agenda should include more and better infrastructure and education investment (even if by government), less and better government spending on benefits, and better government spending on services such as health, education and social welfare. It would also mean a flatter, simpler tax system to fund a government sector chewing up 30% of GDP or less, not the 40% or plus that Labour is aspiring to and National has promised not to change.

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80 Comments

It cannot be that it has only just dawned on you that the middle class always create jobs for their children, deserving or otherwise. This an apolitical desire. Politics just changes the mix of employers.

Those created jobs including consultants are probably earning enough income to qualify paying tax in the higher 39% tax bracket if they have university educations.

I certainly do not wish to further subsidise their income since most of it is already out of my tax/rates paying pocket.

As for those leaving, I guess they probably have to seek their middle class aspirations elsewhere if there are not enough positions. We are a small country with limited resources and those already on the teat are always claiming to need world class people with commensurate salaries. Something has to give.

As for the poor it is a problem which will only get worse as the transfer of wealth has dealt them an ugly hand. Inreasing GST, a regressive tax, will only make them more dependent.

Bernard replies;
Stephen,
Hadn't thought of it as an issue around the middle class wanting to create jobs for their children. I'm hoping my children won't want to be bureaucrats or beneficiaries, but who knows?
cheers/ bernard

Bernard: you say, "This means that now we have 1.85 million people working and paying taxes to 1.75 million who receive benefits or work for the government. This near 1 to 1 ratio compares with a near 1.5 workers to 1 beneficiary in 1999."
This is very misleadiing. There are very large numbers of people (myself included) who work , pay taxes AND receive a benefit - i.e. receive "working for families "which is providing much-needed additional income for those of us in the low-and-middle income bracket who have children- and which is essentially a tax - break. "Working for families" is really tax redistribution not a benefit - and it is to one's advantage to work to receive its maximum loading. Are you hoping the Nats will throw it out or drastically alter it? That'll work.

Bernard replies
Digitally reborn
I am hoping someone will throw out Working for Families, which has created a middle class welfare system par excellence. It has created enormous distortions and the most monumental marginal tax rates in NZ history. cheers/bernard

This is political rather then financial comment. Elections are coming, obviously. Bernard replies:
Allen,
I don't think financial can be separated from political eventually. An election is not the worst time to think about these things. cheers/bernard

Bernard, yoy say "Essentially, this growth in government is driving centre-right voters overseas and is encouraging centre-left voters to stay. The essentially conservative nature of the remaining voters and MMP is cementing in these policies."

Bernard replies;
It's very easy to be centre-left and conservative. That's the definition of the current Labour-led government. cheers/bernard

Yep, hitting the nail on the head..well thought thru.
But it was faults with MMP along similar , different lines why it was introduced, both have there positive and negative aspects.

"For what it's worth, I think that public agenda should include more and better infrastructure and education investment"

Just throw more money at it?? Got to be joking...same with Health, transport, law and order, Conservation.
Sit down, talk to a few Principals, teachers, Doctors, Nurses, policemen over dinner.
I think it was Townsend, who said, if u want to know how to get a company back on its feet, listen to the guy sweeping floors in the factory and the tea lady.
It is the teachers doctors, policemen who know how to teach, do their jobs... not the liberal do gooders, bureaucrats building private empire.
Beeby modernised and turned our education system into a very effective machine...then the liberals fixed something that wasnt broke, and get paid for it

Conservation...tell me why I have to kill off perfectly healthy, pure breed , endangered kakariki parrots, year after yr...and that just 1 species...(shame its not Kiwi) yet DoC , NZ can have these for free, from breeders all over NZ.

Liberals, do gooders, not left wing or right wing, and bureaucratic BS is what sucks up th money, and if we throw more at education, they just soak up more.
Sort this out we sort out our taxation.

There is no Government that would get in with
"A much more preferable option is for our politicians to unveil the scale of the financial crisis before us and map out the changes needed to the structure of our economy"

Bottom line in practical terms it hast to be one with a hidden agenda, neither party has the skills or strength to do so.. these leaders only come around every 2 or 3 generations.

Chris
I think the Nats talk about equality of opportunity not outcome. I thought democracy was a way of electing a Govt trying to run the country along these lines would be a mess. Some people work harder create wealth and employment. The problem today is too much wealth is generated in front of a computer screen at the casino that's called banking.
If you try to increase taxes and penalise the rich you always end up hurting the very people you wish to advantage. Apart from good education and low taxes it hard to see much more we can do to level the stakes, without killing the entrepreneurial spirit. At the end of the day the Govt needs to support industry by creating an environment that business prospers in and which encourages investment not speculation.
Its interesting that a left wing Labour govt has left us in a mess by trying to implement policies that we did not and still do not generate the wealth to afford without borrowing from future generations.

Chris - so are you arguing for equality regardless of effort, investment and risk-taking? If so, all the low-risk, low-effort, equality-seekers can share in sweet bugger all whilst the highly productive households move elsewhere.

The cry of those who forced King John to sign Magna Carta in return for funding his armies was "No taxation without representation" i.e. democracy - perhaps now it should be "No representation without taxation" i.e. if you're not a net contributor to the state you shouldn't be allowed to vote...

[insert here various 'on the take' state-funded losers rolling around foaming at the mouth]

Bernard - unfortunately the last time a financial crisis forced a regime change to replace a socialist administration Muldoon had just about bankrupted the country.

I'd say there's much more pain to come before the centrist-socialist "middle way" becomes untenable. When you add up all the voters on the take either by way of benefit or government employment it's no wonder the givers simply vote with their feet.

I wonder how many of those who see themselves as the hardworking, risk taking, over taxed "givers" are in fact lazy, greedy real estate developers/ sales people/property investors/forex speculators who were able to make a heap of money passively based on speculative returns and property scams or going short on the USD. Now the candy shop is shut they are seething with rage. They may actually have to WORK for a living.

These parasites know no other way of life. They are ADDICTED to their search for easy money. And think they are so much more clever and more deserving than the working class plebs - they take such risks after all.

......and who of all those readers, writers and commentators on www.interest.co.nz create, manufacture or work on a product with their hands -it is all about hammering with 2- 10 fingers brainpower into the keyboard for numbers and words and people don't care- because they don't know anymore how products are made- and made of- so it doesn't really matter where they come from- most come from China -0- India- 0- well cheap- we imported- we pay China/ India- India/ China very rich- NZ ...... ?- but happy as Larry- and do the land, the sea- the green and the blue- the pig and the fish- hands on- 4Wdrive- take- but don't create/ manufacture with your fingers. We don't know anymore- and we don't care- it is all done in China-
and we export our spirit.
Time to reflect.

Ed Glaeser and Andrei Shleifer have a paper called "The Curley Effect". They talk about James Michael Curley, Catholic mayor of Boston in the early 1900s. He beggared the city but in doing so drove out the wealthier protestant voters who opposed him and endeared himself forever to his Catholic constituency with massive redistribution to them (of what little wealth was left).http://papers.ssrn.com/sol3/papers.cfm?abstract_id=310585

Michael Cullen's snipe at a prospective emigrant about a year ago -- basically telling him that he'd prefer it if the guy left -- was entirely too telling.

I wish we had better data on our migrants so we could test whether the same factors that predict voting Labour also negatively predict out-migration. Unfortunately, all we have are those little cards....

I mean, the basic argument is that our earners capable of earning here at the 39% rate of tax are the vast majority of those heading to Aussie - but aside from the raw numbers - where is the data that supports what the income brackets of these outwards migrants are, or is this just a wild assumption?

And given we have net inwards migration - do we have any income or educational data on those coming in?

And what about the recent OECD report about the increasing income disparity in NZ? The gap between the rich and the poor in NZ is widening at one of the worst rates in the OECD. And given our relatively low rate of unemployment as compared to other OECD countries - it isn't as if our poor are a bunch of non-working dole bludgers.

The real increase in the number of beneficiaries, in my estimate relates to our incrementally increasing aged population - a problem that exists in much of the Western world. I asked for clarification of this on the earlier analysis/blog entry. The OECD report points to the use of economic instruments to lift the wealth of families in particular, and I assume this is indeed the philosophy adopted behind the WFF tax relief program.

As I've pointed out before - people who move to Aus go there mainly because of the much, much higher wages and the greater diveristy in opportunities (not to mention the better weather) - not because of the NZ tax regime. When the water, or the credit runs out (whichever happens first) - alot of them will head home.

Bernard replies
Kate,
You make a good point about this article not including the data on the demographic breakdown of those leaving. I haven't seen a breakdown and if you have it please point me in that direction. But I do look around and see anecdote after anecdote of neighbours, friends, family leaving in droves. I know what they do and what they could contribute if they stayed. I don't buy this Muldoonist argument of lifting the IQs on both sides of the Tasman.
You are right about people leaving for higher salaries and lower taxes. So why don't we change that instead of just accepting that 'poor old' NZ will never be as wealthy as the rest. We were long ago and we should be again.
cheers/bernard

The reason young, skilled people leave New Zealand, IMHO, is not the high tax rates. It is either the lack of exciting work or progressive engaging leadership in building a more positive national infrastructure and character.

People in western Europe do not mind paying higher tax if they have a 1,000mb internet connection, great public transport, bicycle paths for the weekend and dynamic urban spaces. A social fabric that feels exciting, living and ever improving, something to be proud of.

Instead we have people who get obsessed by a few percentage points in their personal tax and politicians who's talents are limited to their survival instincts.

What a tenuous argument- that because our tax rates are slightly above Aussie, and the government has hired 10000 paper shufflers, somehow people decide to ditch their friends and families for a place that is marginally less taxed (but has whole new levels of paper shufflers)?! You've been reading Kiwiblog again.

How about these factors off the top of my head:

1) Housing is unaffordable. Most people under 35 are forced into a permanent nomadic existence moving between dingy rentals owned by scummy short-term speculators. If you're used to moving all the time, going to Aussie is not as much of a stretch. If you can't afford to buy a house anywhere, may as well rent somewhere you can get paid properly- which leads me to the next point-

2) Wages in NZ are low- thanks to the destruction of the Unions and awards in the 90s and the failure of Labour to reverse this, many medium skilled workers can (or could) earn a comparative fortune in the mines and construction sites of Aussie. These are the people forming the bulk of the outflow. Wages are now so low here that WFF was necessary to top them up.

3) "5 year immigrants" A significant number of skilled migrant workers use NZ as a transit point to get to their real destination across the ditch. Once they have residency and a job offer, they're gone, as it was the plan all along.

I would imagine these factors drive the numbers more than marginal tax rate esoterics and the socialism/fascism political divide...

totally agree with Gwilyn - there are many reasons for leaving and even more for staying away. But Bernard has a point - the political landscape in NZ is so claustrophobic and petty - it pre-empts the change that is drastically needed. There is no shortage of people that hold the Michael Cullen view. How many expats feel like they are trapped on the other side of silence when it comes to the point of expressing that the 'attitude' problem that exists in NZ. It's time to drop the defensive denial and invest that energy in the difficult business of mapping relevant change.

The reason I left was that the salaries on offer overseas were significantly more than NZ. One day I would like to return home and at that point it will be for lifestyle reasons more than anything else.

In my opinion the problem NZ has is that it's young educated people are not as adverse to moving away from home compared with other populations of people. It's all part of globalisation, NZ is competing with other countries for skills and we're losing.

I agree with Bernard, I don't think that the political skew of the population leads itself to change very well and it is hard to forsee a result that will be one other than slow decline as this skew will get wider over time.

I tend to wonder if the property sector has made themselves wealthy at the expense of those without (more that one) property given the globalisation of the property market and that many "poor" have a satisfaction level that some may see as unsufistication.

Or NZ under labour has turned into a politically correct socialist wet dream nanny state.

Wages in NZ are low because NZ is stuck in a socialist tie warp - not beacuse unions
have been justifiable hamstrung.

The numbers dont lie - NZ has a net emigration problem, skilled people are leaving to be replaced with the unskilled, nonproductive gummint spending has been rising and there is an growing number of welfare recipients and a shrinking number of tax payers.

I will tell my personal story. Ive had some lucky breaks been on the right side on inflation, worked hard made bugger all but capital gains saved me. My wife and i have 4 children.
We worry all the time about the lack of motivation of our children . Have we spoiled them, would they have been better off with less etc. So much of our youth seem to wish to coast. My Children appear to accept less, happy to drift along getting the odd job here and there. One in at Uni at present thinking of having a year out, one works in an orchard . I blame the schools there is a prevailing theory of mediocrity where "some where in the middle is fine". My children are great dont get me wrong no criminal records no trouble but when I was young i used to do 12 hour days. My children don't see the point. It baffles me why they don't want to get out and make a life. Ive decided its the disease of the Middle class doomed to live on an ever declining spiral. Wages are so low for the working classes in NZ and yet in business we have no more to pay. The only answer is less govt and less tax.
I hoping that my children are just late developers otherwise Id better book them into one of those Aussie mines.When Im in Chile It amazes me how hard the children work in school. they start at 8 finish at 5 and often study in English as well as Spanish in some schools German is taught as well. They have a work ethic seldom seen in our youth. Im afraid that this is our threat hardworking people in Chile, Vietnam or china being able to work at levels our youth have no understanding of. We are living of the sweat of our ancestors eventually its going to run out. We will get the same wages as they get in China we will be the ones doing anything to get our children into school we will be the ones with a second rate health service and no pensions.
Im too young to retire and Im trying to buy a business that employs about 5 people its a struggle find a business where I can see a future. this is a big problem for NZ I have money to invest and I have time but Im struggling to find a place for it. Im afraid there is no escape from the fact that if we wish to maintain our standard of living we are going to have to work hard and save. This Labour Party has sold us a lie, the lie that you can increase you wealth by borrowing and spending. Like my children the answer is probably some tough Love.

I concur with Bernards sentiments and also with AndrewJ. The development of nanny statism the poor or no choice between political parties caused by mmp (more mediocre people). The lack of a productive backbone in the country apart from the historical primary producer. These are the reasons people flee. I have always run productive export businesses and employed many people. I have always felt a huge responsibility for those people. However the last 30 years have seen incredible swings in exchange rates and onflowing swings in input costs and revenue which made it almost impossible to take a long term strategic view of investment.This led directly to housing bubbles and non productive asset growth as opposed to productive investment. I used to believe in free floats etc but soon have learned that the financial services sector is too fickle run by shiny arses who have no knowledge of what long term investment is looking for todays margin call or this hours. You could blame the internet for the ability to do this. I said many years ago to a business forum that NZ would become a lifestyle block for the rich and famous and its people serfs and peasents serving their every need for pennies. I dont think that is far away.

Good article Bernhard. Basically "democracy" as we practice it in the Western World is fatally flawed. I'd have to write a book to fully explain what I mean... but you and others are getting the picture. Populist leaders is one outcome.. Ronald Regan and the Governator in the USA are classic examples. Who decided that we should have a "presidential" style election???

A person with your education, experience and tax contribution can be outvoted by a couple of 18 yr old bogans who just want a "free" student allowance to live on. So Labor just "bought " themselves another term with your taxes.

A system which would actually work is one where you actually have to earn or qualify for your vote(s). You get one vote at 18, one more at 30. You get an extra vote for every $5000 in taxes you pay. ( $10,000 for public servants). Extra votes for education and public service...etc. It's not a new idea...

One of the reasons that NZ has not totally collapsed is that the main real wealth generating industries in NZ .. farming and tourism.. cannot be moved; those in them are stuck here.. basically turning water and sunshine into wealth.

Some of the ideas underpinning the welfare state are a double-edged sword. I have just watched an article presented by the race relations commissioner here in the UK, outlining that the most disadvantaged group in society is now white, working class (what ever that means these days) males. Recent immigrants are far outperforming them in schools even though English is a second language. Apparently WWM's lack for nothing materially but are very short on motivation, role models and a point to work. One might assume that hungrier, more ethnically diverse, members of their cohort have an advantage in not being raised with the expectation that the state will provide. I don't know what the answer is to avoiding this apathy and I hate the fact that what I am saying could be misinterpreted as being right wing. Perhaps all physically capable persons should be required to move offshore for a while so that we can all learn what it takes to become self reliant. The precious stamp in my passport says it all - "right to remain - without recourse to public funds".

By many peoples definitions i am rich. But i only pay taxes currently on my interest income. I dont have trusts and all that bollocks. The 'other' rich are not this wonderful bunch of people who are so benefitial to the poor. They often seem a scheming bunch of crooks.

The rich for example have massive companies that encourage the poor to buy junk that rusts in two weeks which is sold as stainless steel. That is fraud. These crap products have been sucked in by the stupidly high NZ dollar while foreign owned banks lend in an unrestricted manner to fund unproductive imports and property speculation by the rich who have no capital gains on their property empires etc etc while inflation runs out of control and jobs are lost overseas. That is another fraud.

People who imagine that Australia is not going to suffer in all of this financial mess must not realise that Australians have been thru an orgy of construction and home owning spending that has created a mirage of jobs and prosperity for the many NZers who left here and went there. Using Australia as an example of what is good is foolish.

Australia is hugely underpinned economically by it's vast mineral wealth resources. Without this it would be little different from NZ IMO.

Bernard replies;
Ian
If only that were true. The services sector in Australia (finance, construction, retail, medical, education etc) makes up 85% of employment and over 65% of GDP. Mining is important, but so is farming in Australia. The rest dominates. Here's the proof. cheers/bernard

The Nobel prize winner Friedman asked the question when commenting on high rates of taxation many years ago as to what would happen in the casino we call life if at the end of every evening the winners purses were taken and given to the losers.

It does not take more than a moments thought to figure out they would stop coming.

It comes then as no surprise that our brightest and best are being creamed off to warmer climes by voting with their feet while the curd rises slowly to the surface.

uk_kiwi is right imo. Especially point "1) Housing is unaffordable."
What bothered me most about the (39%) income tax was part of it went to property investors cranking up house/land prices even more while I was saving for a decent house. Oh, and the interest on my savings were taxed at that rate too, it didn't lose value, it felt different though.

Yes Australia has massive mineral wealth and when commondity prices of materials were going thru the roof then the australian dollar was almost at parity with the US dollar. But times have now changed. Mineral commodities are no longer in fashion as we head into recession.

Meanwhile every dog has its day and little old NZ has food commodity. That is unlikely to go down in price as nations productivity generally declines and it gets harder to move and transport food to people who cannot so easily cut back on what they eat and who tend to eat more to keep their spirits high while they spend less on manufactured goods that come from Australias mineral wealth.

Australia had a bubble.

Look at this page and select from the chart once it loads 'instrument' in the top left corner and select NZDAUD and select from 'timescale' monthly.

And then ask yourself who is now the luckiest country? I dont see a clear difference but for sure there is a ****massive**** recent difference. Australia seems to have just fallen off a cliff. I think it happened about a fortnight ago:-)

Historically the WWM culture could simply be a case of "be careful what you wish for", Generations of "Working Class" in the UK have been bred as factory fodder for the Empire (as an aside I read once that anal sex was outlawed in the UK because it was a form of birth control). But in the 70's energy boom the UK has disassembled its industry and shuffled the WC off to housing estates.

This is as bleak as the welfare culture in NZ, It does not surprise me that we now have generations whose aspiration is to get a bigger benefit from the state than their parents did. The arrogance of the liberal academics/middle class lies in the assumption that everyone aspires to be like me. This is cargo cult egalitarianism.

In my opinion there should not be any systemic impediments to an individuals success (as I feel there is in the UK) but similarly the system should not patronise (as it does in NZ) nor supresss and defraud (as they do in the US culture of greed is good).

Hey Bernard, thanks for the response. It's that factor that makes your blog... well, a blog ... you join in the discussion!

You said, "You are right about people leaving for higher salaries and lower taxes. So why don't we change that instead of just accepting that "˜poor old' NZ will never be as wealthy as the rest. We were long ago and we should be again."

That's exactly what Winston Peters said in the minor party debate - and I assume his definition of "long ago" refers back to the 1940s-1950s? Was this when NZ (apparently) had one of the highest standards of living in the Western world?

I think (although I'm not an historian) - that much of this 'high' was relative to NZs early foray into socialism (i.e. free milk in schools, state housing projects, universal health/ACC etc.)... the newly introduced welfare economics driven state benefits that made John Key's early upbringing of a 'high' standard relative to other OECD (i.e. post-WWII Marshall Plan) economies.

Much as this sounds a noble aspiration, I think it (our relative 'wealth' as measured in OECD economic terms) is a bit of an urban myth. Not that we weren't a strong wealthy economy - we were probably but the reason was because we were so egalitarian in comparison to the rest of the OECD - in other with a low gap between the rich and the poor. There were no significant manufacturing/corporate/banking wealth benefactors from the war here down-under. No one was really that poor, and no one was really that rich. And in that sense, we had one of the highest standards of living in the world.

If this is what you (and Winston Peters for all that matters) aspire to, I'm not saying that is not a good objective. But somehow, I suspect alot of people who harp back to the nostalgia of that egalitarian era, don't really have those egalitarian objectives in mind with respect to reform/change.

Bernard replies
Kate,
Always enjoy your comments. Interesting point about our wealth in the past and how it was distributed. I suspect the wealth was more about the creation than the distribution. Much of it came from the refrigeration boom and us benefiting from the tail end of the British empire. But we did well again after WWII because of the British and European recoveries (and the wool boom).
We still have that ability to grow grass and produce great protein, but we have so many other things too. I don't want to downplay too much our ability to grow fast again. It can be done, but not under the current policy settings. cheers/bernard

I think a large part of our problem is that success is suppressed and demonised in NZ.

The general public attitude towards anyone that gets ahead is "rich prick". No matter how hard or smart they work, no matter what they do, whether good or not. If they are rich, they must either be a scumbag property developer or speculator on non-productive markets. It's not even considered that they may have worked incredibly hard, taken risks, had talents, invented things.

So to succeed is a bad thing. No wonder we have few who do, or who stick around to get spat on and punished here.

We need a 180 degree reversal in attitudes in this area. Kids at school should be studying people who succeeded (and did good things - there are plenty). All of us should realise that successful people are subsidising our standard of living, and for that we should be grateful.

Until we do that, successful people will continue to move to places where they are appreciated instead of punished, and we will all suffer as a consequence.

For the theoretical/ethical understanding of my meaning of 'excess' (as I use it in philosophical, as opposed to monetary terms, but it applies to how our morals influence our 'making a living' behaviours) Aristotle's Nichomachian Ethics is the source reading. Aristotle teaches that the human objective should be to discover and live by "The Golden Mean". It's a great worldview - one which has been forgotton thru the ages.

Kate, why can't "excess" mean creation? Is "The Golden Mean" just a fancy way of saying "mediocre"?

Andrewj's note about children growing up in NZ with a lower work ethic and it worries me - I'm about to come back to NZ with family in tow and I'm going to keep one eye peeled, one hand on my wallet, and perhaps one foot in the US. I remember going through college with bemusement and frustation at the 'dumbing down' of the grade system that proceeded me. Perhaps NZ should just go socialist and be done with it?

On the other hand, this is all the more reason to become politically active in the community.

I've heard that a democracy is when 51% of the population vote for the other 49% of the population to pay 100% of the taxes.

ELECTION
MMP obviously works in other western democracies such as Switzerland. Especially in difficult times why not join forces Labour and National together as a team with 5-7 ministers (Bundesrat).
The winning party Helen or John being the chairperson (Bundespresident) with a proportional share of power from other parties/parliamentarians.
I think that old fashion bullfighting between major parties should go in favour of using the most capable people available to serve our country in the best possible way.

Mmmm Matt, Andrewj ,Neven -Our young people don't have a work ethic? Got an eye on the States? Yeah right. Why let the facts get in the way of the truth. ACTUALLY...

youth unemployment in New Zealand is lower than in most other OECD countries. In 2006, the last year that comparable data is available, New Zealand had the 8th lowest youth unemployment rate of the 27 OECD countries with comparable data. The youth unemployment rate in New Zealand is also considerably below the OECD average (12.5%). In addition, the youth unemployment rate is lower in New Zealand than in Australia, the United Kingdom, and the United States.

I realise that youth unemployment in the UK is horrendous up to 40% of under 19 year old's in some cities. However it was more the lack of drive that concerns me. Look at the interest.co.nz article on benefits it tells a different story to the stats you are talking about. It tells of a unsustainable surge in the size and involvement of the state in our lives.
Someone has to be paying for this growth no wonder so many cannot see the point of getting up in the morning. Its no point comparing ourselves with the UK and USA anymore the competition is to the east.

Mat - the 'Golden Mean' is the middle between between two extremes; excess and deficiency. So, to act in a morally virtuous way, according to Aristotle - one needs to find the mean appropriate for each individual situation. Where courage, for example is concerned, the excess is foolhardiness and the deficit is cowardice. Where wealth is concerned the excess is greed and the deficit is poverty. And so on.

I also came across an interesting quote from him today in this regard -

Am I detecting envy in the comments of some posters. Nothing like the tall poppy syndrome that is so prevalent in New Zealand. Thankfully all the tall poppies relocate overseas to fully enjoy the fruits of their own labour.

Bludging for Families is unsustainable. Luckily the New Zealand economy is self correcting in that once the country implodes under its own moribund weight of government waste and inefficiency, the IMF will direct the new caretakers of the economy to scrap welfare like Bludging for Families.

Alternatively New Zealand could end up being absorbed into the Australian Federation.

OECD, I dislike that 'tall poppy' idiom, however I have a confession. If it weren't for the anonymity factor afforded here I probably wouldn't be a poster. Why? Because I am a bit of one of your 'tall poppy' sorts on various professional fronts. In terms of some of my business interests in the private sector, my partners might not see this kind of opinion necessarily beneficial to the business - and on an employment front, similarly my employer might be a bit concerned regards the political implications of some of my opinions.

The point I am making is - not all 'tall poppies' share a single ethical and moral view of the world. Some of us firmly believe in social equity and social justice, and have absolutely no qualms about redistribution of our wealth. Indeed some of us also spend alot of our own personal time working in civil society free-of-charge in an attempt to advance these principles we hold so dearly.

The Working for Families package has reduced income inequality and the extent of poverty in New Zealand, particularly for the working poor. Sadly, so many on this blog would like to scrap this tax credit in order to give themselves lower taxes and thus concentrate wealth at the upper end again. It makes me ashamed to be a New Zealander when I read such selfish mantra. By the way, from the recently released OECD Report "Growing Unequal" which has been conveniently ignored on this blog, read this:

"On average New Zealand's households [between 1985 and 2005] receive just 13% of their income from the government in the form of public benefits. In the average OECD country, it is 22%. But New Zealand targets these benefits more tightly on low-income households than other countries : one third of total cash benefits go to the poorest 20% of the population. Only Australia and Denmark target their benefits more."

Chris> You can drop the welfare state and get high inequality, high poverty, high crime

It's not about dropping welfare or capitalism in the absolute but about balance and the balance is swinging towards more and more ridiculous state interference in private lives (think ecobulbs and showers), more and more taxation and control resting with anonymous bureaucrats.

The state has doubled in size since I was born - are you seriously arguing that crime, poverty and inequality are far better in 2008 than they were in 1964?

digitally reborn> The Working for Families package has reduced income inequality and the extent of poverty in New Zealand, particularly for the working poor.

Wouldn't it make more sense to simply tax the working poor less or not at all?

Why filter this money through the state so the total amount distributed is substantially less than that taken in.

Oh that's right, that would reduce the size of the state and take control away from the bureaucrats who have all got sociology degrees and are SO much brighter than the little people.

WFF targets tax cuts where they are needed.- it is is basically a reduction in tax for eligible families. It is the most practical way of ensuring tax reductions as it based on number of kids, age etc. It is nothing to do with the size of the state- it is the most practical way of ensuring the right amount of tax is targeted at the right amount of people in circumstances that can be fluid.

May I repeat tbis inconvenient OECD Oct 2008 statistic
":On average New Zealand's households [between 1985 and 2005] receive just 13% of their income from the government in the form of public benefits. In the average OECD country, it is 22%."

"digitally reborn" proclaims the OECD report "[NZ] targets these benefits more tightly on low-income households than other countries" - but is missing a key point of this blog page - that this is the genesis of the problem, not the solution. Reiterating this sound-bite only serves to support this thesis. Other countries may target tax breaks more efficiently - perhaps to increase growth and productivity.

Kate - 'The Golden Mean' ... to label excess is a judgement call and only begs the question. Furthermore, when deciding to cross the road, don't hang about the middle for long, that's not the meaning you're looking for. If you want to say someone is being too greedy then don't hide behind philosophy - just know that you are judging and calling "tall poppy" yourself.

Interesting article; but I dispute the assumption that it is higher taxes that are driving people away from NZ.

I've recently here from the UK and have taken a substantial reduction in standard of living. This is not because tax rates are high; the top rate of income tax is similar to that in the UK but I'm paying a lot less in GST (VAT), national insurance and council tax. The fundamental problem is that salaries are so low. This year I will earn around 30% less than I earned in the UK (at least that was the reduction when I moved here in January; it's nearer 40% now the exchange rate has dropped). A quick poll of friends who have also come here from Europe or the States show this is not usual.

JEM, I was under the impression the point of the blog was to whinge about excessive state interference into personal finances. BH's intro states "I reckon that our economy is being hollowed out by an exodus of wealth generators who are voting with their feet against higher taxes that pay for an expanding government and a growing list of beneficiaries." My point is that New Zealand has almost 50% LESS state intervention that the OECD average - in other words, our beneficiaries are far fewer compared to most countries in the OECD.

And I must say I am gobsmacked by the attitude that it is not seen as equitable that "15% of the population pay nearly 60% of personal income tax". How convenient not to mention that the top 15% of the population earn 95% of the country's collective income.

A bit of background before i offer my opinion: I moved to Western Australia from NZ 10 months ago. My partner and I left because he was offered a job, slightly higher paying but only because of compulsory super and the exchange rate at the time. We are young and thought why not try life overseas for a while, we can save a lot and come back home to start a family. I got a job within 30mins, a 30% payrise + super.

Australia has a federal government, state government and local shire or council government. Every week i hear about a new commission being set up, today it was an oil and gas minister being appointed for WA, there is petrol commisioner, paid 315,000 i believe, to investigate petrol prices, yes can can loby but seems to have no real powers to do anything. There are over 100 local councils in Western Australia.
Bureaucracy is rife here, it is in no way a problem only found in NZ.

Ian> i agree, mining is supporting australia, not just the profits but the royalties that are paid to government, are royalties included in GDP???

Jem> i agree, salaries seem to be the major difference

digitally reborn> I think that benefits, especially sickness benefits, are in principle are a good thing, but WFF just does not make sense, surely you would benefit more digitally reborn if you paid less lax in the first place rather than having it "redistributed" back to you. The more i think about it getting a tax credit just because you have a child just doesn't seem right.

Kate, you can redistribute your "own" wealth to your hearts content. The problem starts when you presume the right to start redistributing other people's wealth. There's nothing wrong with charity on a voluntary basis. The problem with New Zealand's hollowed out economy is that the Labour government has been taking liberties with taxpayer's money. They'll get throw out of office on 8 November because of that which is a good result for New Zealand. It will be up to the new National/ACT government to start implementing policy changes that will get the New Zealand economy up and running again.

The strange thing about pursuing social equity and social justice as end goals is that you end up achieving exactly the opposite. You may derive some sense of self satisfaction from locking "the little people" permanently into poverty, I do not. Hand ups not hand outs. People should be allowed to achieve their own potential and not held back by the government and their envious and jealous supporters.

As for who has the narrow worldview. I migrated from an agrarian and backward economy to a sophisticated first world economy. Whereas Kate, I believe you migrated in exactly the opposite direction. It's not me who's trying to hide from the real world in the back of beyond.

We should be watching the UK. Its interesting how many Brits have moved here from the UK only to find there wages are at a subsistence level.
lets look though at some of the UK's problems and why you are better off out of there.
these figures about the City.

1/3 of UK economic output is in the city.
1/2 of Uk growth is in the city
1/3 or all corporation tax paid by city
contributes 20% to trade surplus
employs more people than construction,farming and factories combined
every day turns over 1/3 of worlds foriegn exchange dealings more than 1 trillion
accounts for 20% of the Uks GDP

and then over all
the UK has the highest debt of any country on record
state share of economy is to rise to over %50
household UK debt 103% of GDP
58% of home loans issued in 2006 (subprime)

The UK faces a decade of grinding debt deflation

I gleamed this info when I was there in march this came from the Telegraph and other publications, I take it as accurate. Take the 14,000 people in London who work in shipping and the job losses and lack of profits in the banking sector and the UK will have to rise taxes going into a recession and borrow heavily its not going to be pretty.
Fire away

Bit over simplified..
Originally we had the wealthy and the serfs
Then came unionisation and a pay packet, other wise the wealthy couldnt spend their money hanging from the trees.
Then the works got more of the wealth thru their wages and unions, which distributed the wealth a little more even
The wealthy get to a point where they now no longer want to share as much wealth and scrap the unions..or at less destroy the works negotiating power.
Which then leads to the Government subsiding workers wages by taxing the wealthy more...take from Paul to pay Paul..and employ a whole lot of non productive Civil servants to cream the take.

Kind of stupid situation isn't it?

It would be far better to employ the civil servants in productive work, tax them and their production with GST... pay the works direct into their wages, also increasing overall tax take.
More productivity, more money for education etc and the wealthy maybe reduce their tax...or at least they finance more production and make more money.

Well, I'm assuming you moved from NZ to either Aus or the UK? The reason I am curious is because very few born and bred NZers I know who migrated permanently harbour such ill will towards the country of their birth. (Indeed that goes not only for NZers but for anyone from any country really). Hence I thought maybe you were not born in NZ.

I thought perhaps you had been born/brought up in a more troubled regime, say Rhodesia, and that was the egrarian economy you referred to in your above post, moving to NZ, perhaps as a child, and becoming a naturalized NZer.

But then maybe you are just a disgruntled, born/bred kiwi ... I suppose there are some of them out there. But you do seem to have a 'chip' on your shoulder about the end of the Rogernomics era and you have translated that into a sort of general distain for all of NZ society who didn't 'jump ship' as well. It's just odd for people to think of their countrymen like that ... we are after all a tribal sort of being, and normally wish our tribe well, wherever we are in the world.

Im a born Breed 3rd Generation middle class Conservative middle of the road Kiwi that has seen and been actively involved in many changes socially and economically over the last 40 dd yrs.
Some good some not so good...I have seen the moves to the right, and to the left, and believe neither are right, but there should be balance between the 2.

This is still GodZone...
I see things happening that may very well move things away from GodZone, rather than just abandon, walk out, I would rather keep NZ as GodZone for my Grandchildren.

OK, so I pay a bit of tax in the top bracket
And child suport for 1 child from a previous...
WFF is out of my reach ;-)

IRD take near 50% of my gross pay... My CURRENT family and I suffer
This isn't giving me warm fuzzies about staying in NZ much longer!

On the other hand... The red-coated nanny will pay me well to sit at home on my bum and just vote them back in.

Oh what a conundrum. Nah!
As implied many times above: Get the lazy shits off their bums early on. Teach the young to have pride in their performance, not to spit on the successful. That's what education should be for - coaching to succeed in life, build up a skill level, teach that 'confortable' is not coasting along in the bottom quarter percentile

Eh by gum you have it soft, soft I say, at 24% "Child support tax" I pay up to 63% tax for the privilege of looking after my own children (40% of the time).

Check on "Bludging for families" because at one time, because the % of bed nights differ from CS to WFF I could claim one and pay the other, How bizarre is that!

Kate

I have no doubt you have your heart is in the right place, but please done "feel sorry" for us, I'm sure others would be more appreciative of your patronisation. For me fellowship to my fellow person (note PC term) does not require the heavy, sometime inaccurate, politically distorted, gender twisted hand of the state.

Hey Grizzle - sounds just like our situation when the family was younger. We too supported a child from a previous relationship and our earnings were always in the top tax bracket. And no, we never felt wealthy and yes we had alot of household debt, in addition to putting the house on the line to guarantee a business overdraft facility.

Looking back, the pressure was massive but when we sold the business we were on our way to a far more relaxed lifestyle having paid off all the debt and from then on we were able to bankroll our own future.

BH - don't hold your breath for a 'public discussion' of any depth. Your excellent article is essentially about economic demographics, and as Europe is discovering, you cannot 'discuss and decide' stuff like birth rates.

You are, of course, quite right about the trend: tax producers are mobile, and can flee high costs/being badly treated as citizens. Tax consumers cannot. They have this ring in their nose which tethers them to the public tax trough. Expecting rational discussion, let alone a mass democratic decision to throw off their chains, is asking turkeys to vote for Thanksgiving. Recall that WFF is 37% of households.

Kate: always enjoy your points, but it doesn't take much nous to figure that the emigration to Oz and other points, will generally speaking exclude two broad classes of punter: those dependent on this country's benefits, and criminals. That really leaves Tax producers, which was, of course, BH's main point.

This whole schemozzle was signalled decades ago by commentators like William Rees-Mogg (Timesonline), as part of the general unsustainability of the welfare state. The fatal flaw in the WS is the blithe assumption that there will always be sufficient tax revenues to shell out for panem et circenses. As the UK is presently discovering, tax revenues can fall along with house prices. And I wouldn't mind betting that the SNAFU (the post-election version of the PREFU) will reveal something of the sort here in GodZone.

My instinct for the solution to the dilemma BH poses, is the Resilient Community version: the hollowed-out nation-state apparatus will be replaced by three groupings: tribal etc primary loyalties; gangs and other criminule quasi-corporates, and resilient communities. You can regard some of the Maori proposals as a local example of the first, we already have the second well entrenched, and as a nation we haven't a clue about the third option.

But, when you think about which of these broad groupings might prevail, or co-exist, and then you start to think about how each one might react etc, I think one can safely say that Darwin will have more say in the shape of things, than Democracy.

What leavens the lump for us is the 'haven' nature of the country, which will ensure a ready supply of smart, well-heeled citoyen-in-waiting. But given the various syndromes thoughtfully discussed (and in some case, exhibited by) posts on this thread, again, this won't be a democratic choice. Creditor's takeover, perhaps......

Tonz - I'm not complaining - I was fully aware when I came here that my salary would drop. Just want to make the point that the issue is pay rather than taxes. Bernard is right when he says we need a high growth, high wage economy.

I notice your analysis vis a vis exodus to Australia didnt also analyse the exodus from Australia to NZ. Also on an increasing trend. 19,000 skilled or professional australians permanently settled here this past year.

A decent percentage of the exodus is unskilled (from NZ) seeking positions in a labour market with strong unions and subsequently higher wages for low skilled jobs.

I criticise both parties for not crediting us wit enough intelligence to give us real ideas and policies. The media dont help with a shallow analysis of most issues.

I agree with high wage high growth economy.

Bernard

Perhaps working for families was a Claytons tax cut rather than a benefit.

Tracey, the exodus to Australia by New Zealanders is far greater than the minimal number of Australians migrating to New Zealand. The net difference in numbers is currently increasing.

It should be no surprise that the Australians that do migrate to New Zealand are skilled as these people will be made up of Australian head offices sending staff to New Zealand to run their branch offices. This will of course be exasperated by all the skilled New Zealand talent leaving New Zealand. The only skilled labour available to do the job for the Australian owned entities in New Zealand will then have to be sourced from Australians in Australia. It's all part of the downward spiral of decline for New Zealand. That's why New Zealand keeps dropping down the OECD ranking for income per capita.

On your other point, Bludging for Families is welfare and was just a blatant bribe for votes by Labour in 2005.

I'm definitely born in New Zealand so in that respect I guess you could say my opinion of New Zealand would be more valid than say someone who migrated from the US and then proceeds to lecture real New Zealanders on the wonders of Welfare and Public sector spending.

You really should stop projecting your own faults onto others. You may be disgruntled, perhaps at the direction the US has taken, but I'm not disgruntled with New Zealand. An accurate description would be that I'm disappointed with the direction New Zealand has taken. Looks like New Zealand will be taking a step in the right direction on Saturday when the current failed Labour government will be booted out of parliament. I've done my bit by voting to make sure this happens. Here's hoping the new National/ACT government can undo the damage that Labour has done over the last nine years.

Don't be so sure about the chances of a National/ACT government. There is a strong possibility of a large overhang with the Maori party winning all the maori electoral seats. This would set the bar for a National/ACT government rather high, 52/53% party vote required by my back of the fag packet calculations. Bring on STV or a return to FPP I say !

I totally agree with Bernard's sentiments that "It would also mean a flatter, simpler tax system to fund a government sector chewing up 30% of GDP or less, not the 40% or plus that Labour is aspiring to and National has promised not to change."

That's why the ACT party needs to be a strong component of the new National/ACT government after 8 November. Only ACT is pushing for change that will achieve the goal of a flatter tax system with less wasteful government spending. It's all about increased economic growth and only ACT is serious about pursuing policies that will achieve higher economic growth.

I've done my bit by voting for the change New Zealand needs. How about you? :cool:

I feel this talk of "increased economic growth" is no more than political BS
Bottom line, internationally everything is falling apart, and there is nothing we can do to create growth at this particular piont of time in history..To do so would be suicide
What we need to do is limit damage and at the same time have ourselves in a position in 18 months/2yrs to THEN put policies in place for early growth..

Its like planting a veggie garden, prepare the round over winter....plant in spring
If we plant in winter the seeds sprout, the frost cones along and we are back to square one, and have to replant with late maturing crops.
Right now to even consider "increased economic growth" is stupid.